MUMBAI, June 12 (Reuters) - Many Indian farmers are openly sowing an unapproved variety of genetically modified (GM) cotton seeds developed by Monsanto, as the government sits on the sidelines for fear of antagonising a big voting bloc ahead of an election next year.

India approved the first GM cotton seed trait in 2002 and an upgraded variety in 2006, helping transform the country into the world's top producer and second-largest exporter of the fibre. But newer traits are not available after Monsanto in 2016 withdrew an application seeking approval for the latest variety due to a royalty dispute with the government.

The herbicide-tolerant variety, lab-altered to help farmers save costs on weed management, has, however, seeped into the country's farms since then. Authorities say they are still investigating how that happened.

"I will only use these seeds or nothing at all," said Rambhau Shinde, a farmer who has been cultivating cotton for nearly four decades in the western state of Maharashtra.

The federal environment ministry said last year planting the seeds violated the Environment Protection Act, and farmers who did so were risking potential jail terms. But many farmers are desperate to boost their incomes after poor yields over the past few years and are willing to ignore the warnings.

A government official in New Delhi, who deals with matters related to GM crops, said it was difficult to keep farmers away from something that they saw benefit in.

"If you don't allow them to plant legally, illegal planting will happen," the official said, requesting anonymity, adding that Monsanto had yet to reapply for an approval to sell its latest variety of GM cotton in India.

A Monsanto India spokesman said the company was confident that the government would prosecute those involved in the illegal trade of the unapproved seeds.

"FIGHTING THE ENEMY"

Except for GM cotton, India has not approved any other transgenic crop on concerns over their safety, and large foreign companies have been increasingly unhappy at what they say is the infringement of their intellectual property by widespread planting of unapproved seeds.

Farmers say they prefer Monsanto's herbicide-tolerant Roundup Ready Flex (RRF) strain of cotton seeds as they can cut input costs by as much as 10,000 rupees ($150) an acre compared with other varieties.

Cotton growers are also getting support from farmers' unions, who are already at loggerheads with Prime Minister Narendra Modi's government amid a fall in prices of many agricultural commodities.

Without new varieties of seeds, they fear being outplayed by other major cotton producers and exporters such as the United States, Brazil and Australia, said Anil Ghanwat, the president of a farmers' organisation in Maharashtra.

"The government is asking us to carry a sword to fight the enemy with AK-56 rifles," said Ghanwat, who has urged farmers to sow the unapproved GM seed. "We will protect them if government authorities try to destroy the crop or harass them with legal cases."

Last year, just before cotton harvesting, authorities found plantations of unapproved seeds in key producing states such as Maharashtra and Gujarat in the west and Andhra Pradesh and Telangana in the south.

In February, authorities in Telangana told two local companies that cotton seeds they sold to farmers may have contained traces of Monsanto's RRF strain, though the companies denied that.

This year various states have formed inspection teams to curb the sale of such seeds, though farmers have built a parallel network to distribute them without getting caught, said M.S. Gholap, director at Maharashtra's agriculture department.

The seeds were being produced secretly, mainly in Gujarat and Telangana, and then smuggled to other states, Gholap said.

Maharashtra has seized unapproved seeds worth 12 million rupees ($178,000) in the past two months, enough to cultivate 10,000 hectares, said Gholap.

Farmers are paying as much as a 30 percent premium for the unapproved seeds in Maharashtra and Gujarat compared with seeds of older strains.

The proliferation of unapproved seeds could force the government to grant approval to the new seed technology, as happened in 2002 when New Delhi legalised planting of the Bt Cotton GM strain, said C D Mayee, head of South Asia Biotechnology Centre, a New Delhi-based non-profit organisation.

The strong demand for the illegal seeds has alarmed some federal government officials.

"Once farmers realise laws are toothless, then they could cultivate GM soybean, corn and other crops," said one official, who asked not to be identified. "It would have serious impact on our biodiversity." ($1 = 67.4400 Indian rupees)

Reporting by Rajendra Jadhav; Additional reporting by Mayank
Bhardwaj in NEW DELHI; Editing by Krishna N. Das and Alex
Richardson